Schools’ pension funds diverted

A California company fails to make deposits for the university and DOE retirement plans

A California-based company is under investigation for failing to make deposits into retirement funds held by employees of the University of Hawaii and state Department of Education after deducting money from paychecks for that purpose.

The missed payments by Plan Compliance Group Ltd. amount to about $420,000 in UH's case, but DOE officials declined to reveal a figure. However, they said in a release yesterday that they had to dip into Education Department funds to make up the difference. The UH system is planning to do the same.

The attorney general's office and the Federal Bureau of Investigation are investigating.

"We believe this to be an extremely serious matter," said a statement from the AG's office.

An FBI spokesman also confirmed the agency was involved, but said it could not comment on an ongoing investigation.

PCG is under contract to the DOE and the university to make deductions from employee paychecks and deposit them into tax-sheltered annuity funds chosen by employees, lessening some of the administrative burden on the two institutions.

However, some recent deposits were made late or not at all, state officials said.

UH's problems occurred with the Sept. 15 and Sept. 20 pay periods, said Sam Callejo, vice president for administration.

Callejo said PCG has acknowledged the missed deposits but repeatedly missed deadlines for returning the money, prompting the university to sever ties and contact the attorney general's office.

"(PCG officials) have said they'll make good on it, but the money hasn't been coming. Now it's two months later. Where's our money, guys?" Callejo said.

Efforts to reach the company, based in Walnut Creek, Calif., were unsuccessful yesterday.

A DOE spokeswoman declined any comment on the numbers of employees affected or the monetary amounts, referring all questions to the attorney general's office, where officials refused to give details on their investigation.

The university does not know exactly how many of the roughly 2,600 university employees participating in the tax-sheltered annuity plan were affected, but it was not all of them, said Human Resources Director Edward Yuen.

Yuen said PCG's latest pledge was to return the money by Dec. 5, but the university had decided not to wait.

The administration, which has contracted with PCG for about five years, is trying to determine who was affected and will then deposit an appropriate amount of university funds into their accounts, he said.

"We'll be in the process of doing that soon. We want to minimize the impact on our employees," Yuen said.

Since the university learned of the problems in late September, it has sent regular payroll deductions directly to the various funds, he added.

The university should have been doing that in the first place, said J.N. Musto, executive director of the University of Hawaii Professional Assembly, the faculty union.

"All along we've been saying you don't need a third party to administer this," he said.

"The administration complained that it's too much work and they couldn't do without a third party even though the fund companies said they're perfectly willing to transfer the money directly at no extra cost," he said.

Yuen countered that PCG provided other services, such as monitoring contributions to make sure they were under allowed limits set by the IRS, thereby shielding the university from legal risks, and handled significant amounts of other paperwork.